Early Argentine economic successes are unsustainable

Significance The government has posted the first fiscal surplus in years, inflation has declined and foreign currency reserves have risen from USD21.0bn in mid-December to USD28.5bn. However, these achievements are based on unsustainable drivers, including sharply falling pensions and wages, delayed government payments, reduced transfers to provinces, peso appreciation and the rescheduling of import payments. Impacts Cuts in transfers to provinces will affect governability, given governors’ role in guaranteeing congressional backing for economic reforms. Increased energy and transport tariffs, needed to reduce subsidies and thus the fiscal deficit, will collide with promises to cut inflation. The real fall in pensions, public-sector wages and provincial transfers will increase poverty and undermine Milei’s political support. The real appreciation of the peso will start to boost expectations of a new devaluation, which will also increase inflation expectations.